IN THE COURT OF APPEALS OF MARYLAND
No. 87
September Term, 1995
_____________________________________
CAROL T. KLINGENBERG
v.
BARRY L. KLINGENBERG
____________________________________
Murphy, C.J.
Eldridge
Rodowsky
Chasanow
Karwacki
Bell
Raker,
JJ.
____________________________________
OPINION BY MURPHY, C.J.
____________________________________
Filed:
May 3, 1996
This case involves shares of common stock in Whiting-Turner
Contracting Company (Whiting-Turner or the Company), purchased by
its employee, Barry Klingenberg, pursuant to the Company's stock
plan for certain of its key executive employees.
The issue is
whether the shares of stock qualify as "deferred compensation"
under Maryland Code (1984, 1991 Repl. Vol., 1995 Supp.), § 8-205(a)
of the Family Law Article, the ownership of which may be subject to
transfer when distributing marital assets subsequent to a divorce.1
I
A
When apportioning marital assets in a divorce action, Maryland
courts generally "may not transfer the ownership of personal or
real property from 1 party to the other."
§ 8-202.
The sole
exception to this rule is found in § 8-205(a), which provides that
in dividing marital property, a court "may transfer ownership of an
interest in a pension, retirement, profit sharing, or deferred
compensation plan from 1 party to either or both parties, grant a
monetary award, or both, as an adjustment of the equities and
rights of the parties concerning marital property."
In this case,
we are asked to determine whether the stock plan at issue here
qualifies as a "pension, retirement, profit sharing, or deferred
compensation plan" within the contemplation of § 8-205(a), which
would permit a court, in its discretion, to transfer all or part of
the interest in the stock from one spouse to the other.
1
Unless otherwise stated, all statutory references are to the
Family Law Article.
B
Barry and Carolyn Klingenberg were married on August 10, 1968.
The couple separated in 1986.
Approximately one year later, they
reconciled their differences and resumed cohabitation.
The couple
separated a second time around June 1, 1988, and Mrs. Klingenberg
filed for absolute divorce on June 21, 1993.
On July 26, 1994, the
Circuit Court for Baltimore County (Hennegan, J.) awarded Mrs.
Klingenberg a judgment of absolute divorce.
At the time of their reconciliation in 1987, following their
first
separation,
the
Klingenbergs
signed
a
"reconciliation
agreement" which provided for the disposition of marital property
in the event that they should separate a second time.
Paragraph
4(b) of the reconciliation agreement provided for the disposition
of a broad range of assets:
Within 30 days [of separation] all cash, savings
accounts, checking accounts, certificates of deposit,
money market funds, investment funds, stock and any and
all like assets are to be divided equally between the
parties. The amount and/or value of any and all such
liquid assets is to be fixed as of the date of separation
of the parties.
In contrast, ¶ 6 of that agreement provided for the disposition of
Mr. Klingenberg's pension:
In the event the parties or either of them seek and
obtain an absolute divorce, then in that event Husband
shall consent to the entry of a Qualified Domestic
Relations Order transferring one-half (1/2) of the
marital portion of Husband's pension to Wife.
The
marital portion of Husband's pension shall be determined
by multiplying the pension benefits by a fraction, the
numerator of which shall be the total number of years of
marriage and the denominator of which shall be the total
2
number of years of Husband's employment accumulated
towards the maximum allowable pension benefits.
The reconciliation agreement appears to have been intended to
comprehensively divide the couples' liquid assets in the event of
a future separation.
Mr.
Klingenberg,
as
an
employee
of
participated in the company's pension plan.
Whiting-Turner,
At the time of the
divorce, Mr. Klingenberg agreed to transfer a share in this pension
to Mrs. Klingenberg, as required by ¶ 6 of the reconciliation
agreement.
In addition to this pension, however, Mr. Klingenberg
had acquired several shares of stock in Whiting-Turner under these
circumstances:
agreement
On December 31, 1985, Mr. Klingenberg signed an
titled
"The
Stockholders Agreement."
Whiting-Turner
Contracting
Company
Under this agreement, Whiting-Turner
authorized the issuance of 100,000 shares of common stock and
1,200,197 shares of preferred stock.
The vast majority of the
preferred stock, and therefore control of the company, was to
remain in the hands of Willard Hackerman, the principal owner of
Whiting-Turner.
Twenty-seven
employees
of
the
company
were
eligible to purchase specified numbers of shares of the common
stock at a price of $640.00 per share.
Mr. Klingenberg was
eligible to purchase, and did purchase, 15 shares of the common
stock; a total investment of $9600.00.
In return, according to the
agreement, Mr. Klingenberg received certificates representing his
ownership of the stock.
3
The stockholder's agreement placed restrictions on transfer of
the stock.
If Mr. Klingenberg were to attempt to sell his stock to
a third party, Whiting-Turner could re-purchase the stock from him
at the lesser of the stock's current "book" value or the original
$640.00 per share investment.
this
low
value
if
Mr.
It also could purchase the shares at
Klingenberg's
stock
were
attached
or
subjected to execution by a creditor, or if Klingenberg declared
bankruptcy, or if he attempted to assign the stock for the benefit
of a creditor, or "if any portion of his Stock is made subject to
a charging order."
sell
his
terminated
stock
his
to
Finally, Mr. Klingenberg would be required to
Whiting-Turner
employment
for
at
any
this
lower
value
if
he
reason
other
than
death,
retirement at age 65, or because of a permanent disability.
If Mr. Klingenberg's employment with Whiting-Turner were to
end because of his death, retirement, or disability, the agreement
requires Whiting-Turner to re-purchase his stock under a more
generous valuation.
In these circumstances, the stock would be
purchased using the greater of the stock's "book value" or the
original investment.
The "book value" of the stock is determined
annually by Whiting-Turner's independent accountants, based on a
valuation of the company's total value.
It would not be required
to repurchase the stock if it had insufficient surplus or credit
restrictions, or if adverse tax consequences would result.
In the
event that Whiting-Turner would not repurchase the shares, the
other
shareholders
would
be
able
4
to
purchase
them
from
Mr.
Klingenberg or his estate upon the same terms as Whiting-Turner.
On June 30, 1994, during the divorce proceedings, the parties
entered an
agreement
on
the
record
disposing
property except the Whiting-Turner stock.
of
all
marital
In announcing the terms
of the parties' agreement, Mr. Klingenberg's attorney stated that
[w]ith respect to the Shadow stock or the stock of the
Whiting-Turner senior employees, this is the one issue
that we cannot resolve as of yet. We will ask the Court
to reserve on that particular issue for a . . . factual
determination of the value of that stock [on] 6/1/88 and
we would ask the Court to give us some period of time
within the next 60 days . . . to produce expert valuation
evidence and testimony so that the Court can make a
determination of the value.
At
that
point,
Mrs.
Klingenberg's
attorney
argued
that
Mrs.
Klingenberg was entitled to half of the proceeds from the WhitingTurner stock "if, as, and when" they are distributed to Mr.
Klingenberg.
The parties agreed that the circuit court would
review the reconciliation agreement and if it determined that the
Whiting-Turner stock was a pension plan, it could enter an order
distributing the proceeds from the stock if, as, and when Mr.
Klingenberg sold the stock.
On September 22, 1994, the circuit court held a hearing on the
valuation of the Whiting-Turner stock.
The two issues addressed at
this hearing were how to characterize the stock, and whether the
1987 reconciliation agreement controlled the disposition of the
stock.
value of
Mrs. Klingenberg's attorney introduced evidence of the
the
Whiting-Turner
stock
in
1994,
arguing
that
the
reconciliation agreement had been modified at the earlier hearing
5
on June 30 with respect to the stock.
In response, the court
stated that it had no recollection of any such modification and
"[i]f that's not specifically stated on the record [of the earlier
proceeding], I'm not buying that it does."
the
transcript
of
the
previous
proceeding
The court found that
"clearly
says
the
opposite" from Mrs. Klingenberg's argument that the reconciliation
agreement had been modified with respect to the Whiting-Turner
stock.
When Mrs. Klingenberg's attorney persisted, the court
suggested that it should vacate the prior order and re-litigate the
entire property settlement.
At this point, the attorney conceded
that the court could take the original reconciliation agreement
into consideration in resolving the issue of the stock.
Each side presented expert witnesses at the hearing.
Mr.
Klingenberg's witness testified as to Whiting-Turner's stock plan
and said that the stock should be valued at $9600.00, the amount
Mr. Klingenberg would receive if he were to attempt to sell the
stock on the date of the hearing.
It was also maintained that the
stock should be valued as of the date of separation in 1988.
Mrs.
Klingenberg's expert witness presented testimony as to the value of
the stock plan in 1994, and testified as to the similarities and
differences between the Whiting-Turner stock and a pension plan.
In addition, the witness testified that the stock plan had been
recapitalized as of January 1, 1990 and that the original common
stock had appreciated to a value of $38,900 per share.
The witness
testified that after the re-capitalization, Mr. Klingenberg owned
6
58,350 shares of stock at a value of $10.00 per share.
In
making
its
ruling,
the
court
focused
on
whether
the
Whiting-Turner stock was a pension plan, one-half of the shares of
which could be transferred to Mrs. Klingenberg under § 8-205(a).
The court, however, found that "the burden has not been met to show
it's a pension plan or a plan referred to in Family Law 8-205(a),
which will allow me to transfer the rights to parties."
The court
provided a list of reasons as to why the stock was not a pension
plan, specifically finding that the stock was not recognized by the
federal government as a pension plan and that the stock was
actually
stock
in
Whiting-Turner,
even
though
it
was
highly
restrictive.
After finding that the Whiting-Turner stock actually was
stock, as opposed to some other financial arrangement, the court
applied ¶ 4(b) of the reconciliation agreement to value the stock
as of the date of separation in 1988.
In valuing the stock, the
court found that Whiting-Turner had grown at least 15 percent per
year and that Mr. Klingenberg paid $9600 for the stock at the end
of 1985.
The court applied the 15 percent growth rate from 1985 to
1988, and valued the stock at $14,600.
The court entered a
monetary judgment in favor of Mrs. Klingenberg for $7300.00, onehalf of the value of the stock.
Mrs. Klingenberg appealed to the Court of Special Appeals,
asking it to hold that the circuit court's failure to apply § 8205(a) was in error.
We granted certiorari before the intermediate
7
appellate court considered the appeal.
C
Before us, Mrs. Klingenberg argues that the Whiting-Turner
stock plan is "deferred compensation" within the meaning of that
term as used in § 8-205(a).
Because the stock is deferred
compensation, she argues, the circuit court had the authority to
transfer
the
stock
on
an
"if,
as,
and
when"
basis.
Mrs.
Klingenberg further maintains that the court only decided to value
the stock as specified in the reconciliation agreement because it
had determined that it could not transfer a one-half interest in
the stock to Mrs. Klingenberg under § 8-205(a).
In contrast, Mr.
Klingenberg argues that Mrs. Klingenberg failed to explicitly raise
the issue of deferred compensation under § 8-205(a) in the court
below and that the circuit court was correct in valuing the stock
as specified in the reconciliation agreement.
II
A
We
hold
that
the
Whiting-Turner
stock
is
a
deferred
compensation plan within the ambit of § 8-205(a) despite the fact
that Mrs. Klingenberg failed to specifically argue that point in
the trial court.
Maryland Rule 8-131 provides that "[o]rdinarily,
the appellate court will not decide any . . . issue unless it
plainly appears by the record to have been raised in or decided by
the trial court. . . ."
We have frequently stated that the primary
purpose of Rule 8-131(a) is to ensure fairness for all parties in
8
a case and to promote the orderly administration of law.
State v.
Bell, 334 Md. 178, 189, 638 A.2d 107 (1994); Brice v. State, 254
Md. 655, 661, 255 A.2d 28 (1969).
Rule 8-131 also provides that
this Court may decide an issue not raised below "if necessary or
desirable to guide the trial court or to avoid the expense and
delay of another appeal."
The record in this case contains
extensive testimony as to the nature of the Whiting-Turner stock
plan, and the parties argued the applicability of § 8-205(a) at
length without expressly focusing on that part of the statute
pertaining to "deferred compensation."
In addition, the circuit
court did not limit its ruling to pensions, but held that it had no
authority under § 8-205(a) in toto to transfer the Whiting-Turner
stock.
B
The circuit court based its ruling in part on the fact that an
order transferring an interest in the stock to Mrs. Klingenberg
would not meet the requirements for a Qualified Domestic Relations
Order (QDRO) under federal law.
We conclude, however, that the
federal requirements for a QDRO do not constrain our determination
of whether the Whiting-Turner stock is "deferred compensation"
under 8-205(a).
In
its
legislature's
present
form,
reaction
to
§
8-205(a)
changes
9
in
embodies
federal
the
laws
Maryland
regulating
employee benefit programs.2
In 1974, Congress passed the Employee
Retirement Income Security Act (ERISA), P.L. 93-406, 88 Stat. 829
(1974), "in order to provide better protection for beneficiaries of
employee pension and welfare benefit plans abounding in the private
workplace."
(1989).
impose
Rohrbeck v. Rohrbeck, 318 Md. 28, 30, 566 A.2d 767
One of the changes made to federal law by ERISA was to
an
anti-alienation
requirement
on
federally
regulated
pensions--"a 'spendthrift' provision precluding plan participants
from assigning or alienating their benefits under pension plans
subject to the Act."
Id. at 30-31 (emphasis in original).
In
addition, § 514 of ERISA provided that the Act's basic requirements
would
supersede
any
state
laws
"insofar
as
they
may
now
or
hereafter relate to any employee benefit plan" subject to ERISA's
requirements.
As we stated in Rohrbeck, supra, 318 Md. at 32, "[t]he
combination
of
the
anti-alienation
provision
.
.
.
and
the
preemption provision of ERISA § 514 eventually raised a question .
.
. as to the validity of orders entered in State domestic
relations proceedings requiring that pension benefits be paid to a
person other than the plan beneficiary."
Congress acted to clarify
this ambiguity by passing the Retirement Equity Act of 1984 (REA),
P.L. 98-397, 98 Stat. 1433 (1984).
2
Following passage of REA,
We discussed the relevant history of these federal laws at
length in Rohrbeck v. Rohrbeck, 318 Md. 28, 30-36, 566 A.2d 767
(1989), and will only briefly summarize them here.
10
ERISA's anti-alienation requirement no longer applied to judicial
orders that could be classified as a "qualified domestic relations
order."
See REA § 104; REA § 204.
In order to qualify as a QDRO,
a judicial order must, in addition to other requirements, be "made
pursuant to a State domestic relations law."
204;
29
U.S.C.
§
1056(d)(3)(B)(ii)(II)
See REA § 104; REA §
(1994);
26
U.S.C.
§
414(p)(1)(B)(ii) (1994).
Prior to 1986, § 8-202(a)(3) of the Family Law Article flatly
prohibited the courts from transferring ownership of personal or
real property in a divorce action.
Following passage of ERISA and
the REA, therefore, it was possible that no domestic relations
order in Maryland ordering the partition of a pension that was
marital property would qualify as a QDRO, since the transfer was
not pursuant to a State domestic relations law.
As a result, it
could be argued that such domestic relations orders were invalid
because they had been preempted by federal law.
supra, 318 Md. at 38.
address this problem.
See Rohrbeck,
House Bill 1033 was passed in 1986 to
See Bill Analysis of House Bill 1033 (1986);
Summary of Senate Judicial Proceedings Committee Report for House
Bill 1033 (1986).
allow
the
courts
This bill amended §§ 8-202(a)(3) and 8-205(a) to
to
transfer
ownership
of
an
interest
in
a
"pension, retirement, profit sharing, or deferred compensation
plan" as a part of a divorce settlement.
See ch. 765, Laws of
Maryland (1986).
Although the circuit court found that an order attempting to
11
give Mrs. Klingenberg an interest in the Whiting-Turner stock would
not qualify as a QDRO, the court also determined that the stock
plan was not a pension plan.
In addition, the parties agree that
the stock plan is not a qualified benefits plan under ERISA or the
tax code and is exempt from the funding, participation and vesting
requirements
imposed
by
federal
law.
See
Michael
J.
Canan,
Qualified Retirement and Other Employee Benefits Plans § 1.6(a)
(West 1994).
For this reason, the federal requirements for QDROs
are not here applicable.
As we have previously noted, the anti-alienation provisions in
federal law "have been held to apply only to pension plans subject
to ERISA."
Rohrbeck, supra, 318 Md. at 38 (emphasis in original).
Since QDROs were created under federal law to provide an exception
to those anti-alienation provisions, they are not applicable here
and we need not determine whether the Whiting-Turner stock could be
transferred under a QDRO.
C
To ascertain whether the circuit court could have given Mrs.
Klingenberg an interest in the stock, we must determine whether it
is "deferred compensation" encompassed within the meaning of § 8205(a).
As we have stated on numerous occasions, "the cardinal
rule of statutory interpretation is to ascertain and effectuate the
legislative intention" and "the language of the statute itself is
the primary source of this intent."
738, 744, 580 A.2d 188 (1990).
Privette v. State, 320 Md.
The words used in a statute are to
12
be given "their ordinary and popularly understood meaning, absent
a manifest contrary legislative intention,"
In re Arnold M., 298
Md. 515, 520, 471 A.2d 313 (1984), and "where the language of the
statute is free from ambiguity, courts may not disregard the
natural import of the words used in order to extend or limit its
meaning."
Privette, supra, 320 Md. at 745.
The question, then, is
whether the stock plan is a "deferred compensation plan" within the
popularly understood meaning of the word.
Although § 8-205(a) was amended in response to changes in
federal law, we find nothing in the legislative history which
demonstrates
an
intent
to
a
limit
circuit
court
to
only
transferring interests which may be transferred subject to a QDRO.
Since there appears to be no illuminating legislative history on
this issue, we are left with the plain language of the statute.
Deferred compensation "generally refers to money which, by
prior arrangement, is paid to the employee in tax years subsequent
to that in which it is earned."
Michael J. Canan, Qualified
Retirement and Other Employee Benefit Plans § 1.6 (West 1994).
Black's
Law
Dictionary
(6th
ed.
1990)
defines
"deferred
compensation" as "[c]ompensation that will be taxed when received
and not when earned,"
id. at 421, and defines "compensation" as
"[r]emuneration for services rendered" or "[c]onsideration or price
of a privilege purchased."
id. at 283.
See also Greensboro
Pathology Associates v. United States, 698 F.2d 1196 (Fed. Cir.
1982)
(stating
that
"[i]f
something
13
is
a
plan
of
deferred
compensation it should by definition be compensation received in
the future for work done in the past.").
While some deferred compensation plans may "simply delay
distribution
of
cash
payments
to
employees,"
a
deferred
compensation plan may also accomplish other goals, such as tying
receipt of the deferred compensation to continued performance by
the employee or including covenants not to compete.
§ 2.4.
Canan, supra,
The term "deferred compensation plan" is frequently used to
refer to special compensation arrangements offered to highly paid
executives.
See Andrew Lawlor & Mark Manin, Nonqualified Deferred
Compensation for Key Executives, in Employee Benefits Handbook §
13-2 (Fred K. Foulkes ed. 1982); see also Black's Law Dictionary
421
(defining
"[c]ompensation
executives"
"nonqualified
arrangements
and
noting
that
deferred
which
compensation
are
"[s]uch
plans"
as
frequently
offered
to
plans
may
include
stock
options, restricted stock, etc.").
The stock plan at issue here was designed with the intention
of retaining key executives by providing a long-term incentive to
remain
with
Whiting-Turner.
Mr.
Klingenberg
was
given
the
opportunity to invest in the stock plan as an incident to his
employment with Whiting-Turner, and will receive the highest level
of benefits under the stock plan if he remains with the company
until retirement.
is
a
"deferred
We conclude that the Whiting-Turner stock plan
compensation
plan"
within
popularly understood meaning" of the term.
14
the
"ordinary
and
In re Arnold M., supra,
298 Md. at 520.3
In view of this conclusion, we shall remand the case for
further proceedings.
We cannot order the court below to transfer
an interest in the Whiting-Turner stock at this time for two
reasons.
First, § 8-205(a) gives the circuit court the discretion
to transfer an interest in a deferred compensation plan, but does
not require it to do so.
Thus, the circuit court may not have
chosen to apply § 8-205(a) even if it had determined that it had
such authority.
Second, it is quite possible that the stock could
be both "deferred compensation" under § 8-205(a) and "stock" as
used in the reconciliation agreement.
In this event, the circuit
court must determine whether to apply the reconciliation agreement
and value the stock as of 1988, or to exercise its authority under
§ 8-205(a).
JUDGMENT OF THE CIRCUIT COURT FOR
BALTIMORE
COUNTY
VACATED;
CASE
REMANDED TO THAT COURT FOR FURTHER
3
At the same time, it is apparent that the plan provides
compensation not only for Mr. Klingenberg's past services, but is
intended to compensate him for future services by providing him
with an incentive to remain with Whiting-Turner until retirement.
If, upon remand, the circuit court chooses to order Mr. Klingenberg
to distribute a share of the profits from the Whiting-Turner stock
on an if, as, and when basis, the circuit court must determine how
much of the stock value at the time of retirement is a result of
compensation received before the divorce and how much is a result
of compensation earned subsequent to the divorce. Mrs. Klingenberg
will only be entitled to a one-half share of the compensation
earned prior to the divorce.
15
PROCEEDINGS
CONSISTENT
WITH
THIS
OPINION; COSTS TO BE DIVIDED EQUALLY
BETWEEN THE PARTIES.
16
